Unprecedented prices give Marine Harvest record EBIT, but farming costs ‘unacceptable’

Marine Harvest achieved operational earnings before interest and taxes (EBIT) of EUR 149 million (USD 168.5 million) in the second-quarter of this year, up 78 percent from the EUR 84 million (USD 95 million) posted in the corresponding quarter of 2015.

“Driven by unprecedented prices due to strong demand and reduced supply, we achieved all time high operational results. Farming results in Norway, considering the high contract share, and Canada were very encouraging. Further, the market balance for 2016 is expected to remain tight, and we project a global supply decline of 7 percent,” said Alf-Helge Aarskog, CEO of Marine Harvest.

Prices in Q2 2016 trended up in all markets by around 50 percent year-on-year, confirmed CFO Ivan Vindheim.

“These are unprecedented. We haven’t seen such prices since probably the 1980s, so once again it’s been a really good quarter.”

The reference prices for Norway, Chile and North America were EUR 6.85 (USD 7.75), USD 5.32 (EUR 4.70) and USD 3.28 (EUR 2.90) per kg respectively, with “strong underlying demand” in all markets except Russia, which has suffered because of the high salmon prices. Some challenges are also being seen in France, but there has been strong growth in Asian markets, said Vindheim.

“It looks as though the market has absorbed the prices that we have seen so far,” he said.

Marine Harvest reported operational revenues of EUR 832 million (USD 941 million) in the last quarter, up 8 percent from EUR 767 million (USD 867.5 million) in Q2 2015. The total harvest volume in the quarter was 87,159 metric tons (MT) in the quarter, down from 104,158 MT.

Its harvest guidance for 2016 is 400,000 MT, which is 14,000 MT lower than the previous guidance. The shortfall is attributed to expected declines of 9,000 MT in Norway and 5,000 MT in Scotland, with sea lice challenges cited as the main cause in both cases.

In the second-quarter, salmon of Norwegian origin achieved an operational EBIT per kg of EUR 2.12 (USD 2.40), up from EUR 1.22 (USD 1.38) in Q2 2015. Salmon of Scottish and Canadian origin reported operational EBIT per kg of EUR 0.47 (USD 0.53) and EUR 2.34 (USD 2.65) respectively, compared to EUR 0.64 (USD 0.72) and EUR 0.26 (USD 0.29). Salmon of Chilean origin reported operational EBIT of EUR -0.23 (USD -0.26) per kg in the quarter, an improvement from EUR -0.53 (USD -0.60).

The figures include contributions from Sales and Marketing, including MH Consumer Products. MH Consumer Products reported an operational EBIT of EUR -4.8 million (USD -5.4 million), down from EUR 5.5 million (USD 6.2 million) in Q2 2015, while MH Feed reported an operational EBIT of EUR 3.3 million (USD 3.7 million), up from EUR 3.1 million (USD 3.5 million).

“Despite all time high salmon prices, farming costs have become unacceptably high and the cost trend is not satisfactory. Compared to the second quarter of 2015, costs are up in all regions. Marine Harvest continues to have the utmost focus on cost reduction throughout the organization and supports new methods and innovative solutions to combat the cost escalation,” said Aarskog.

Marine Harvest and Deep Sea Supply (DSS) recently established an aquaculture shipping joint venture and has already contracted two newbuilds – one multipurpose well boat for Canada and a harvest vessel for Norway – with Aarskog saying the approach provides the opportunity for Marine Harvest to both reduce costs and improve fish biology.

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